FTC Proposes Rule Targeting Fees

FTC Proposes Rule Targeting Fees

October 17, 2023, Covington Alert

On October 11, 2023, the Federal Trade Commission (“FTC”) issued a Notice of Proposed Rulemaking (“NPRM”) that proposes sweeping regulation intended to prohibit unfair or deceptive fees (sometimes referred to as “hidden fees”) broadly across industries.[1] If finalized, the proposed rule would target two specific types of practices that the FTC has identified as unlawful under its FTC Act Section 5 authority: (1) Advertising or displaying prices that hide or delay showing mandatory fees that are included in the total price of a good or service; and (2) Misleading or withholding information regarding the amount, purpose, or refundability of fees.

The FTC’s basis for the proposed rule is that it will increase economic efficiency by providing consumers with more transparent pricing. In a press release, FTC Chair Lina Khan remarked that the proposed rule would “save people money and time, and make our markets more fair and competitive.” If the proposed rule is enacted, the FTC may seek civil penalties of up to $50,120 per violation.

Scope of the Proposed Rule

The FTC’s proposed rule applies broadly to any “business” that “offers goods or services, including but not limited to, online, in mobile applications, and in physical locations.” Although the NPRM highlights fees in certain industries, this broad definition means the proposed rule could impact any business within the jurisdiction of the FTC that charges fees to consumers. The proposed rule would prohibit the following as unfair or deceptive practices:

1. Hidden Fees. Offering, displaying, or advertising “an amount that a consumer may pay without clearly and conspicuously disclosing the total price.” The proposed rule is intended to require display of the total amount, excluding shipping and government fees, that a consumer will pay at the beginning of the purchase process to eliminate “bait-and-switch” or “drip pricing” practices. Additionally, the proposed rule requires businesses to display the total price more prominently than any other pricing information in any offer, display, or advertisement.
2. Misleading Fees. Misrepresenting “the nature and purpose of any amount a consumer may pay, including the refundability of such fees and the identity of any good or service for which fees are charged.”

Next Steps: FTC Rulemaking Under the Magnuson-Moss Act

The NRPM draws on the over 12,000 comments the FTC received following its November 2022 Advance Notice of Proposed Rulemaking (“ANPR”) on hidden fees.[2] The FTC identified two overarching concerns from the comments: (1) the use of “bait-and-switch” pricing tactics, whereby businesses advertise prices excluding mandatory fees, and fail to accurately represent the total price of goods or services until later in the purchasing process; and (2) failing to clearly and conspicuously disclose the purpose and nature of fees.

According to the FTC, the comments cite hidden fees across a wide array of industries, including hotels, short-term lodging, travel companies, live-event ticketing, rental housing, automobile sales and rentals, outlet stores, restaurants, financial services, and internet service providers, among others. 

The FTC’s NPRM is the next step in the FTC’s rulemaking process. The FTC is seeking public comment on 37 questions, including the clarity of the rule’s key definitions, scope of the rule’s application, benefit to consumers, and costs of compliance. The request for comments places an emphasis on data to support answers to the questions posed. Comments will be due 60 days following publication in the Federal Register.

Interested parties may also request an informal hearing (but must do so by the close of the written comment period). The FTC, after review of the rulemaking record, may issue, modify, or decline to issue any rule. A Final Rule adopted by a majority of the FTC must be based on the rulemaking record and must include a statement of basis and purpose and final regulatory analysis.

If you have any questions concerning the material discussed in this client alert, please contact the members of our Advertising and Consumer Protection practice.